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Financial products, like everything else, evolve over time. Financial institutions strive to be the best. With this in mind, they are always coming up with new products to stay competitive with the other companies. This has caused the market to overflow with too many new products that virtually go untested. Fixed annuities have stayed the same throughout the years and are not often overlooked. But if you are looking at investment vehicles, then you should not overlook a fixed annuity.
How money works is governed by basic economical and physical laws. A lot of companies, like insurance companies that sell investment products, will put together really good looking prospectus’ that promise great returns and they show you a lot of pages that will make you believe them. Investing in any investment vehicle poses an inherent risk of loss, so to minimize that, companies will promise you results, but they cover themselves by glossing over the fine print of what they will actually guarantee you.
The Warren Buffett quote, “Beware geeks bearing formulas,” says it all.
You can accomplish a lot more as an investor if you focus on using simple products and a quality strategy. In the long run, fixed annuities help to build a solid retirement plan just as well as any of the jazzy indexed and variable products. When you invest in a fixed annuity and add it to your portfolio, what you see is what you get. Simple products do that.
Fixed and immediate annuities have been around for longer than any other annuity product out there. And that’s because they work. Now, the new products may work but we don’t know that yet. No one wants to head into retirement with an untested product. That’s kind of like trusting someone else to pack your parachute.
So what is so good about Fixed Annuities? There are several things.
1) Better Returns than Traditional Bank Certificates of Deposit. A fixed annuity will generally offer you a better return than a normal banking institution would if you were to invest with them. Plus, fixed annuities have a guaranteed minimum interest rate, allowing you to know that no matter what happens, your account will always grow.
2) Money Options. Now this may seem funny to have options when it comes to accessing your own money, but a lot of investment vehicles will penalize you for taking your own money out. With a fixed annuity, there are options that you can access your money without being charged for it. Plus, most products give you the choice to covert them into guaranteed income over a set number of years. Two major leaders in the insurance and business industries, New York Life and Wharton Business School, conducted research and found that immediate annuities are the best way a person can maximize their retirement funds.
Safety- 2008 marked a disastrous year for the global financial markets. Many insurance companies were able to make it through the turmoil by using very conservative management strategies. Insurance companies are expected, because of the nature of their business, to hold more cash in reserve than most regular financial institutions. Because of this, many insurance companies are still very stable and profitable. There is also the safeguard provided by each state. This is an insurance guaranty which insures any losses up to $100,000, similar to the FDIC.
Is there a downside to fixed annuities? As with most things in this world, yes, there is. The debate should not be whether they are good or bad, rather that they are appropriate for some people and inappropriate for others. Timing is a vital element. Most people have the ability to benefit from using a fixed or immediate annuity during their retirement. However, if their timing is off, they may wish they never invested in it.
Most of the problems seen in the annuity market originate from salesmen who are not qualified enough. There are also plenty of products that work really well for the insurance company and not so well for the investor. It takes a little work to be able to discern between a good contract and a not so good one.
You will want to find an adviser who is experienced and qualified, if you want to get the most out of a fixed annuity. Come visit us at AnnuityStraightTalk.com and you’ll find someone who understands the products they sell and how to use them appropriately. This might mean a little work from your end, but isn’t securing your retirement worth it?
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